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No salary, yet still accruing vacation?
The question referred to the Supreme Court for a preliminary ruling is whether an employee on sick leave continues to accrue statutory annual leave entitlement during a dormant employment contract. A dormant employment contract is an employment agreement that remains in force after the expiry of the 104-week period of incapacity for work, while no salary is paid and the employee typically receives a WIA disability benefit.
According to the current wording of Article 7:634(1) of the Dutch Civil Code, an employee, in principle, only accrues statutory annual leave during periods in which they are entitled to salary. As there is no longer any entitlement to salary during a dormant employment contract, it is often assumed in practice that no further annual leave is accrued. However, the Advocate General concludes that this approach is not in accordance with European law.
Accrual of annual leave under European law
According to the Advocate General, it follows from settled case law of the Court of Justice that the right to paid annual leave is a fundamental social right. This right is enshrined in Article 31(2) of the Charter of Fundamental Rights of the European Union and is further elaborated in Article 7 of the Working Time Directive. The Court of Justice has repeatedly held that the entitlement to annual leave must not be made subject to additional conditions.
Moreover, established EU case law requires that employees who are incapacitated for work should, in principle, be treated in the same way as employees who have actually worked for the purposes of accruing statutory annual leave. Therefore, the fact that an employee is unable to perform work due to illness cannot, in itself, result in a loss of annual leave accrual, the Advocate General argues. Dutch law, however, links the accrual of annual leave to an employee's entitlement to salary. In the Advocate General's opinion, this link results in long-term incapacitated employees under a dormant employment contract enjoying less protection than is required under EU law. The Advocate General therefore concludes that Article 7:634(1) of the Dutch Civil Code should not be applied to the accrual of annual leave during a dormant employment contract.
The Court of Justice has, however, accepted that Member States may set a limitation period (carry-over period) for annual leave days accrued during long-term incapacity for work, so that these do not accumulate indefinitely. That limitation period must, however, substantially exceed the reference period during which the days were accrued; the Court has deemed a period of fifteen months to be acceptable. This exception does not relate to the accrual of annual leave days themselves, but solely to the expiry of days already accrued after a certain period of time. Although Dutch law provides for a limitation period in Article 7:640a of the Civil Code, the Advocate General notes that this provision does not apply where the employee has been reasonably unable to take holiday. According to the Advocate General, current Dutch law therefore does not impose a comparable restriction on the accumulation of holiday entitlement during a dormant employment relationship. Consequently, an employee under a dormant employment contract who is fully incapacitated for work and unable to reintegrate continues to accrue annual leave.
Possible implications for dormant employment contracts
This conclusion touches on a broader discussion regarding the future of dormant employment contracts. The transition payment compensation scheme was introduced at the time to prevent employers from retaining employees on long-term sick leave solely to avoid paying the transition payment. The well-known Xella judgment of the Supreme Court was also handed down partly against this background. At the same time, the government has now proposed to abolish the compensation scheme entirely. The intended entry into force has been postponed until 1 January 2028. However, the current premise remains that employers will no longer be entitled to reimbursement from the UWV for transition compensation paid to employees in the future. The Advocate General notes that it is still unclear what consequences this will have for the scope of the Xella obligation and for the practice of dormant employment contracts.
If the Supreme Court follows the Advocate General’s opinion, this could lead to a further increase in the financial burden associated with a dormant employment contract. Employers will then no longer be compensated for the transition payments they have made, but may also have to pay out a large number of holiday days accrued during the dormant employment relationship. This could lead to substantial claims, particularly in the case of dormant employment relationships that continue for a long period.
What does this mean for employers?
For the time being, this is merely an opinion from the Advocate General. The Supreme Court has yet to deliver its judgement and is under no obligation to follow the Advocate General’s advice. Furthermore, the abolition of the compensation scheme for transition payments is not yet final. At the same time, the Advocate General’s opinion is firmly rooted in existing European case law on the accrual of annual leave during incapacity for work. Consequently, there appears to be a real possibility that the Supreme Court will align itself with this line of reasoning.
One question that remains unanswered, however, is what pay the employee should receive if, during a dormant employment contract, they take annual leave days that they have accrued during that same dormant employment contract. After all, they are no longer entitled to pay. We will closely monitor developments and keep you informed of the Supreme Court’s final ruling. Should the Supreme Court follow the Advocate General’s opinion, this could be an additional factor to consider when deciding whether or not to continue a dormant employment contract after the waiting period has expired.
Disclaimer
The Supreme Court has not yet handed down its judgement, and parliamentary proceedings regarding the abolition of the transition payment compensation scheme are still ongoing. Both the Supreme Court’s final judgement and any future legislation may therefore lead to a different outcome.
